Employee Misclassification Prevention Act Reintroduced in House of Representatives

by Art Gutman Ph.D., Professor, Florida Institute of Technology

Following closely on the heels of the joint DOL-IRS announcement to improve efforts to identify employer practices of misclassification (9/19/11 – see alert posted on 10/18/11), Representative Lynn Woolsey (D-Calif.) re-introduced the “Employee Misclassification Prevention Act” (EMPA) on 10/13/11. Woolsey had previously introduced similar legislation in April 2010 that died in a Democratic-controlled House. Coming so closely on the heels of the DOL-IRS announcement, and in a Republican-controlled House, it will be interesting to see if this bill (H.R. 3178) advances. Recall that the purpose of the DOL-IRS release was to:

[E]nable the U.S. Department of Labor to share information and coordinate law enforcement with the IRS and participating states in order to level the playing field for law-abiding employers and ensure that employees receive the protections to which they are entitled under federal and state law.

The EMPA would be an amendment to the Fair Labor Standards Act. The main legislative provisions of Woolsey’s bill include:

• Ensuring that employers keep records reflecting the accurate status of each worker as an employee or nonemployee and clarify that employers violate the Fair Labor Standards Act when they misclassify workers.

• Providing penalties for employers that misclassify their employees and are found to have violated employees' overtime or minimum wage rights. The penalty would not exceed $1,100 for first-time offenders and up to $5,000 for repeated violations.

• Requiring employers to notify workers of their classification as an employee or nonemployee.

• Creating an “employee rights” website to inform workers about their federal and state wage and hour rights.

• Providing protections to workers who are discriminated against because they have sought to be accurately classified.

• Mandating that states conduct audits to identify employers who misclassify workers and require that DOL monitor states' efforts to identify misclassification.

• Directing states to strengthen their own penalties for worker misclassification.

• Permitting DOL and IRS to refer incidents of misclassification to one another.

According to George Miller (D-Cailf.), the ranking member of the House Education and Workforce Committee:

Misclassification is fundamentally unfair to our nation's law-abiding employers, and unfair to the countless workers who are unlawfully stripped of basic protections like minimum wage, overtime, and the right to organize. Strengthening the law to prevent misclassification will level the playing field for those that follow the law and help to close an estimated $54 billion federal tax gap resulting from this illegal activity.

According to Woolsey, the IRS estimates that misclassification cost the federal treasury about 2.7 billion a year in unpaid tax revenue. Woolsey also noted that:

[A]ccording to the General Accountability Office, the misclassification of employees is widespread with at least 10 million workers rightly or wrongly classified as independent contractors. In addition, Woolsey said, the Labor Department has estimated that up to 30 percent of U.S. companies misclassify their employees.

This is beginning to look like a well coordinated frontal assault on misclassification of employees.